What is a Clearinghouse in Healthcare?
A clearinghouse in healthcare is a middleman between a healthcare provider and a health plan that checks claims from healthcare providers to ensure they don’t contain errors before forwarding them to a health plan for payment. Having a middleman to check for accuracy reduces workloads for both healthcare providers and health plans and accelerates the payment of claims.
A clearinghouse in healthcare has several definitions – and can have several interpretations of the definitions. For health plans and healthcare providers subject to the HIPAA Administrative Simplification Regulations, it can be important to understand how the Department of Health and Human Services defines a clearinghouse in healthcare to avoid unintentional HIPAA violations.
What is a Healthcare Clearinghouse under HIPAA?
In the definitions section of the HIPAA Administrative Simplification Regulations (§160.103), a healthcare clearinghouse under HIPAA is defined as a public or private entity, including a billing service, repricing company, community health management information system or community health information system, and “value added” networks and switches, that performs either of the following functions:
(1) Processes or facilitates the processing of health information received from another entity in a nonstandard format or containing nonstandard data content into standard data HIPAA elements, or
(2) Receives a standard transaction from another entity and processes or facilitates the processing of health information into nonstandard format or nonstandard data content for the receiving entity.
Wasn’t HIPAA Supposed to Standardize the Claims Process?
To an onlooker from outside the industry, it might seem strange that healthcare providers and health plans still use healthcare clearinghouses when one of the objectives of the HIPAA Administrative Simplification Regulations was to standardize the claims process in order to reduce inefficiencies and reduce the likelihood of fraud in the healthcare industry.
However, healthcare billing is a challenging process. There are currently four medical data code sets permitted by HIPAA, one of which – ICD-10-CM – has more than 69,000 codes to represent different diagnoses and treatments. Once you multiply these by the number of HCPCS codes (for medical services and medical supplies) and numerous National Drug Codes, it is easy to see how errors can be made.
To further complicate the issue, there are thousands of health plans and thousands of hospitals in the United States. Some will have up-to-date claims software, others will not. A clearinghouse in healthcare not only has to ensure claims are correct but also that they are delivered to the health plan for payment if a healthcare provider and health plan use incompatible software.
Other challenges to take into account include state laws relating to the payment of healthcare claims, co-pays, and deductibles. It would be extremely difficult for a healthcare provider to manage all the codes and variables associated with the claims process accurately, which could delay payments and potentially result in cashflow problems for healthcare organizations on tight budgets.
Why it is Important to Understand what a Clearinghouse in Healthcare is
For health plans and healthcare providers subject to the HIPAA Administrative Simplification Regulations, it is important to understand when a clearinghouse in healthcare qualifies as a covered entity and when a clearinghouse in healthcare qualifies as a business associate to ensure that – in the latter case – a Business Associate Agreement is in place to comply with the HIPAA requirements.
A clearinghouse qualifies as a covered entity when it conducts business-to-business transactions as described in the definitions above. However, if Covered Entity A conducts its own clearinghouse activities (i.e., a healthcare provider that bills health plans directly), and is contracted by Covered Entity B to conduct clearinghouse activities on its behalf, Covered Entity A becomes a business associate of Covered Entity B, and it is necessary for a Business Associate Agreement to be in place.
Health plans and healthcare providers unsure about when a clearinghouse in healthcare qualifies as a covered entity and when it qualifies as a business associate should seek professional compliance advice.
What is a Healthcare Clearinghouse? FAQs
What is a Healthcare Clearinghouse in Medical Billing?
A healthcare clearinghouse in medical billing converts medical billing data into a standard format that can be understood by different payers and checks the claims for errors or missing information. A clearinghouse also verifies the patient’s insurance eligibility, submits the claims electronically, and tracks their status. A clearinghouse helps to streamline the billing process, reduce denials, and speed up reimbursements for healthcare providers.
How do Healthcare Clearinghouses Ensure the Security of Medical Data?
Healthcare clearinghouses ensure the security of medical data in several ways:
Compliance with HIPAA Regulations – Clearinghouses are required to comply with the applicable standards of the Health Insurance Portability and Accountability Act (HIPAA), which mandates the secure and confidential handling of sensitive patient data.
Secure Data Transmission – Healthcare clearinghouses function as electronic hubs that allow healthcare providers to transmit claims to health plans in ways that ensure Protected Health Information (PHI) remains secure.
Data Normalization – Clearinghouses process and convert medical claims into a standardized format, a process termed “normalization”. This involves transmuting the diverse data formats from healthcare providers into a uniform structure that health plans can readily process.
Claim Scrubbing – Healthcare clearinghouses review each claim (a process known as claim scrubbing) before it reaches the health plan, thereby minimizing errors, identifying potential security issues, and speeding up the reimbursement process.
By implementing these measures, healthcare clearinghouses play a pivotal role in ensuring accurate, efficient, and secure data exchange in the healthcare industry.
Are Healthcare Providers Required to Use a Clearinghouse?
Healthcare providers are not explicitly required to use a clearinghouse for processing medical claims. However, while it’s not a requirement, many healthcare providers choose to use a clearinghouse because of the benefits they offer – such as eligibility verification, electronic remittance advice, and the ability to handle a variety of medical claims. The decision to use a clearinghouse may depend on various factors, including the size of the healthcare provider, the volume of claims processed, and the resources available for handling claims internally.
